Meridian Bank: The Prime Meridian

Meridian Bank: The Prime Meridian

Ancient Chinese medicine defines a “meridian” as a critical pathway in the body through which vital energy flows.

In twelve short years, Meridian Bank has become that dynamic conduit for the Greater Philadelphia area, and parts of New Jersey and Delaware.

Led by CEO and Chairman Christopher J. Annas, Meridian has exploded onto the banking scene as an innovative start-up with an entrepreneurial vibe, a nucleus of experienced commercial bankers, and a rapidly expanding footprint—and bottom line.

Like a modern-day Midas, whatever they touch seems to turn to gold. Fast-forward through the projects they have invested in over the past decade and you see a real-life montage of bustling communities rising up, booming businesses being planted, schools flourishing, and the thresholds to new homes being crossed with joy.

But despite its namesake’s link to ancient medicine, there is nothing “ancient” about Meridian Bank.

Founded in 2004, Meridian was part of a wave of more than 20 start-ups or “de novo” banks that opened in the Greater Philadelphia region in the early 2000s. Today, Meridian is one of the last of that era that is still surviving, and thriving.

Unlike the many time-honored Pennsylvania banks that harken back to the faded Civil War days and the simpler, slower-paced, horse-and-buggy era, this community bank is a thoroughly modern machine. Its headquarters building alone, along Route 30 in Malvern, exudes a futuristic feel, with its sleek panels of glass and gray. They rest on the cutting edge of technology.

In Meridian’s early days, Annas had the foresight to recognize that technological innovation was poised to usher in a new era of online banking, and that the traditional, physical branch network would diminish in importance.

In late 2004, he knew a check scanner would soon be available after federal approval of the technology. With this scanner, businesses could deposit checks right from their office. No more fighting traffic to drive to a bank, waiting in line for a teller or handling cash.

Meridian became one of the first community banks in the country to adopt the check scanner.

Technologies like this one supported Annas’ vision of maintaining a strategic physical footprint.

In its first 11 years in business Meridian operated just two banking offices, only recently opening its third in Media, the seat of Delaware County. With their first two offices alone, Meridian grew to $660 million in assets.

Most of their business comes through relationships and electronic channels, not traditional walk-in branches.

“We decided in our formation period that Commerce and Citizens and Bank of America were strong banks,” Annas said. “They were the behemoths that dominated the retail market and ad space.” So Meridian decided not to play in that arena at first, opting instead to serve the business community.

It was Annas’s comfort zone, along with his team’s. He was an adept commercial lender in the days of Industrial Valley Bank, and most of his team members were also commercially-oriented.

“We were able to attract business from people we’d worked with in the past,” said Joe Cafarchio, EVP and Chief Lending Officer at Meridian.

Cafarchio was one of Meridian’s first employees, and he’s led its commercial lending team since the beginning. “Business owners appreciate that we’re nimble and flexible, and that they have unfiltered access to decision-makers.”

By 2007, before the economic downturn hit in earnest, Annas announced that year-over-year, Meridian’s pre-tax income had increased 65% and their net loans increased 37%, with good diversification in commercial, real estate and consumer portfolios.

“The Meridian team has worked very hard to increase profitability and market share in a difficult and competitive banking environment,” Annas reported that year.

The seasoned Meridian line-up approached 2008 with a cocktail of caution and confidence.

In the next few years they endured two of the ultimate tests, the Great Recession and Dodd-Frank, and an ensuing wave of mergers and acquisitions. But they emerged with a strong portfolio and a desire to continue growing and expanding services to the community, particularly those who had been disaffected by the financial crisis.

In 2011, Meridian expanded into the residential mortgage business when they hired an experienced local team of ten mortgage professionals. Within a few months, that small team had grown to over 50 people operating out of an expansive former food store plaza in Plymouth Meeting.

By 2014, Meridian dominated the market as the ninth biggest mortgage lender in Pennsylvania and the second largest in the state of Delaware.

Today, the mortgage team has nearly 20 locations across Pennsylvania, New Jersey and Delaware.

This geographic expansion has propelled the bank to expand their service area to the entire “Delaware Valley” – the Philadelphia metropolitan area which comprises the historic city of Philadelphia and the growing and increasingly affluent six or seven counties surrounding it, rich with well-manicured mansions and verdant woodland and parks, along with two in New Jersey, and one in the state of Delaware.

Their market is “more an oval than a circle,” as Annas described it.

It is an egg shape that has hatched countless new opportunities. Annas noted that Chester County is one of the top 25 areas in the U.S. in terms of income per capita, blessed with great wealth and major industrial parks.

So what is their key to success? “Our team,” answered Annas without hesitation or equivocation.

“The people we hired who were customer-facing people were all well-known in the community,” he said. “It is important that we knew who we can lend to, and even more important, who we shouldn’t lend to.”

Annas knew many of his experienced lending teammates, like Joe Cafarchio, from his early banking days in the 1980s.

“We all gelled into a real good group before we even got the doors open,” Annas said.

With 315 employees currently, Meridian is still looking to hire the best and brightest in the area, to better serve their customers.

The Making of a Meridian CEO

It is a remarkable success story for a man who wasn’t sure what career path to take after college.

Annas graduated from Conestoga High School in Berwyn, after moving to the area from Minneapolis. He graduated from Penn State with a degree in Finance, and later went on to earn his MBA from Villanova University.

The job market in the year he graduated from Happy Valley, in 1979, was dismal.

One of his friends’ fathers was the CEO and a board member of Provident Bank. This father talked to Chris about banking, which propelled him to his first “real” job at Fidelity Bank in Philadelphia in 1979, starting as a credit analyst.

He has been in banking ever since. He first worked with small businesses, then advanced to larger ones, including cable television giants. He later became regional vice president for large corporate lending and media communications at Summit Bank.

There he achieved one of his personal and professional pinnacles when he successfully handled Jeff Lurie’s jumbo-sized transaction to purchase the Philadelphia Eagles franchise in 1995.

Annas worked at Summit for eight years. Fatefully, one of his customers with experience on a bank board was looking to start a new bank in Chester County. He approached Chris and asked him if he wanted to run it. Thus was born The Community Bank of Chester County.

Chris stayed there for five years before opening today’s Meridian Bank.

In choosing the Meridian name, they resurrected a beloved word from the past that had instant and favorable recognition in the Delaware Valley.

Meridian was the name of a bank formed in the early 80s and headquartered in Reading, PA. It was a prominent commercial bank in the 80s and 90s, but was bought by CoreStates in 1995.

In the 1990s, those mergers and acquisitions took place with dizzying speed, affecting institutions such as the “old” Meridian Bank, First Pennsylvania, Germantown Savings, Fidelity, First Union and many others.

It’s a “classic tale,” said Annas. “Mergers seem to hit in waves, like dominos.”

Today’s wave of bank consolidation continues to cause dislocation for many business owners, Annas said. It dramatically impacts the small business customer in terms of relationships, fees, and the mechanics of banking. Gone are the old familiar services and faces. These events cause business owners to re-evaluate their banking relationship.

Consolidation is the “catalyst for why people choose to change banks, and we hope to be one of the banks they look to when that dislocation comes up,” Annas said. “We are a pillar of support for small businesses.”

Clearly, that recipe has worked. Meridian just raised $13.8 million in capital through a common stock offering to take advantage of the opportunities in the marketplace.

The bank’s recent capital raise is an “affirmation of a couple of things,” Annas said. “We will use it judiciously to help businesses in our area to get better credit and support the economic growth of the Delaware Valley. It is our affirmation and the market’s affirmation of the bank’s strength to take a strong position in the Delaware Valley and help people in even greater ways,” Annas said.

The Meridian Give-Back

Meridian has not only transformed the community through business loans and mortgages, but also through community giving.

One of the prime illustrations of Meridian’s community spirit is the state’s EITC program, or the Educational Improvement Tax Credit program.

The prolonged state budget impasse affected the program in a profoundly negative way. Usually, the bank would receive an approval letter from the state in July verifying its ability to receive tax credits for money they allocate to state-approved non-profit organizations. After which they are given 30 days to distribute the funds.

But this year, Meridian received their approval letter from the State on Dec. 28, 2015. The letters gave them only three days to disburse the donations, not thirty. Worse, the letter said only that the bank “may” qualify for tax credits. No guarantees.

It became a high-stakes financial decision for a bank that gives $250,000 a year to EITC.

They also give nearly $300,000 to other charitable endeavors outside of EITC.

Annas said, “We knew we may not get these tax credits. It was very tenuous.”

For three days bank leaders debated their options, considering that this one choice amounted to a $135,000 swing in earnings.

“We had phone calls from schools, nonprofits, and students who were counting on this money to go to college,” said AVP Commercial Marketing Jessica Annas, who oversees Meridian’s community investments.

The Meridian team was moved by their tales of potential layoffs and cuts to service at the hands of the unprecedented state budget impasse.

In the end, they made the decision to go ahead and send the money.

They felt they had an obligation to the community.

“Everyone was really thankful—at this time particularly,” Chris Annas said. “Many other businesses did not risk it. We decided: we are doing it anyway. People need this money.”

One of the organizations supported by the bank is Chester County Futures, a non-profit providing academic support, mentoring and scholarships for motivated, economically disadvantaged youth.

“So many organizations were in dire straits. And these kids need this scholarship money. It was touch and go,” Annas said.

Another one of the bank’s most successful community give-backs is the CEO Series.

The CEO Series is a quarterly educational breakfast presentation for business owners, CEOs and Meridian customers.
Jessica said, “We bring in a speaker for an hour,” to educate and entertain the group. Many of the speakers are emerging or established authors, in which case Meridian provides a signed copy of the book to everyone in the audience. It’s not just informational; it’s also a premier networking opportunity.

Meridian’s CEO Series speaker in March 2016 was famed entrepreneur Bill McDermott, the CEO of SAP, the third largest software company in the world.

“It was our best turnout yet,” said Jessica.

The bank has built what Jessica calls the “Meridian ecosystem,” where bankers and clients operate in a safe, symbiotic, close-knit environment, like family.

The CEO Series started in 2010 with just 11 people around the table of the bank’s board room, Jessica said. People were skeptical at first, not realizing that these were free, educational gatherings and not a thinly disguised sales pitch.

Then Meridian brought in more big-name speakers, such as Afterburner, a popular group of Navy Seals and fighter pilots who teach businesses the planning and training that goes on in their missions, applying military precision to corporate team building and leadership development. Each Afterburner consultant served in the military and applies their experiences to the business sphere.

That appearance drew 135 people to the elegant Desmond Hotel in Malvern. From there, it has grown even more.

“As we’ve grown from 11 to 20 to 60 to over 100, we continue to try and support our customers and the community by bringing in world class talent,” Jessica said.

Positive Press

In December, the Philadelphia Inquirer featured the bank as an encouraging anomaly. In an article titled, “Meridian: Last, Best of Philly’s little banks?” the Inquirer’s Joe DiStefano lauded Meridian’s profitability and success among its peer group.

While many other Greater Philadelphia banks have been snapped up by larger lenders, “Meridian has been the ‘we try harder’ bank ever since, and we’ve really outperformed…the other banks that started around that time, particularly in profitability,” Annas said.

In fact, this April they raised $13.8 million in common stock, giving them the ability to finance nearly $200 million in new loans to Delaware Valley businesses.

Annas cited a great opportunity for growth in the next few years, based on the current bank turmoil. “As banks get bigger, they necessarily de-emphasize the smaller loans on which we feed,” he told DiStefano in the December article.

While many banks find it tough to make a living with less than $2 billion assets, Annas finds that many smaller and profitable banks nationwide continue despite the regulatory blitzkrieg.
Meridian, for example, has $660 million in assets.

“This offering will provide us significant capital for growth, and reconfirm our independence to the business community. A vibrant and diversified banking sector is critical for the Delaware Valley’s continued economic growth,” Annas told DiStefano.

According to FDIC data, Meridian has increased its assets by 10% or more each year – and boosting profits by $1 million a year (to $5 million last year) since 2009.

The mergers and acquisitions are partly a result of community banks being saddled with layers of expense and scrutiny that make it difficult to generate returns for investors. The FDIC has literally shut down new bank applications, having only approved two in the country in the last six years, compared to about 30 per year prior to 2009.

The environment for community banks is no cakewalk, but Annas believes well-run community banks can sustain themselves through the changes that Dodd-Frank and other regulatory issues have wrought. Annas insists that a bank of $100 million to $150 million dollars in asset size can still be profitable.

Meridian grew to $480 million in assets in 2013 by concentrating on the small business market.

When a small business person came to one of their two branches, the bank handed them a check scanner and taught them how to bank online. Meridian has also adopted a lot of the payment methods that small businesses use today.

In addition to two new, strategically placed banking offices in Blue Bell and Doylestown this year, Meridian is looking to grow into Lancaster, Philadelphia and Berks Counties.

In a 2013 Reading Eagle interview conducted by Dan Fink, Annas cited an Asian inspiration: He said, “Kaizen is a Japanese term meaning continuous improvement. Companies and individuals must constantly get better at jobs and processes to keep competitive.”

Through continuous improvement, that vital meridian they have built just keeps getting stronger.